Mortgage

HSBC yanks massive PHH mortgage servicing portfolio

PHH's subservicing portfolio will be cut by nearly 30%

It appears that PHH Corp. has a subservicing problem on its hands, as for the second time in four months, the company is about to lose a large portion of its mortgage subservicing portfolio.

PHH disclosed Thursday that it recently received notice from HSBC Bank that it plans to sell the mortgage servicing rights on approximately 139,000 mortgage loans currently subserviced by PHH Mortgage Corporation, a wholly-owned subsidiary of PHH, on behalf of HSBC.

In an 8-K filing with the Securities and Exchange Commission, PHH said that HSBC informed the company that the purchaser of the mortgage servicing rights does not plan to continue using PHH as a subservicer.

PHH said that the portfolio of loans it’s set to lose subservicing rights for represents approximately 29% of the company’s total subservicing portfolio units, as of June 30, 2016.

The company also said that the sale and transfer, which is subject to investor and other approvals, is expected to take place in the fourth quarter of this year.

According the company’s SEC filing, PHH estimates that the loss of this subservicing will cost the company approximately $10 million in pre-tax earnings on an annualized basis.

PHH did not that this sale of servicing rights does not impact HSBC’s mortgage origination activity with PHH or the portion of PHH’s HSBC subservicing portfolio that is not part of the sale.

HSBC’s decision to pull servicing from PHH and sell it off represents the second time that PHH lost a significant chunk of its subservicing this year.

In April, Bank of America informed PHH that it intended to pull the servicing on mortgages originated for Merrill Lynch clients away from PHH and take it in house.

That decision came just a few months after Bank of America and PHH agreed to continue an agreement which had PHH subservicing mortgages for Merrill Lynch clients.

But, Bank of America then decided to take the servicing back from PHH.

According to PHH’s SEC filing, between the HSBC mortgage servicing rights sale and Bank of America’s decision, PHH expects its total subservicing units to decline by approximately 229,000, or approximately 47% of its total subservicing portfolio.

PHH said that in the wake of these moves, it is “taking actions intended to realign direct operating costs to match client-driven reductions in subservicing and production volume, including actions to re-engineer facilities and overhead costs.”

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